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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                          -----------------------------


                                    FORM 10-Q

[x]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act  of  1934.  For  the  quarterly  period  ended  MARCH  31,  2002.
                                                         -----------------
                                       OR
[ ]  Transition  Report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934.  For the transition period from ______________ to _______________.

                       Commission File Number:  001-05270
                                                ---------

                              SOFTNET SYSTEMS, INC.
                              ---------------------
             (Exact name of registrant as specified in its charter)

               DELAWARE                                   11-1817252
               --------                                   ----------
    (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                   Identification No.)

       650 TOWNSEND STREET, SUITE 225, SAN FRANCISCO, CALIFORNIA     94103
       ---------------------------------------------------------     -----
             (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code:  (415) 354-3900
                                                            --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.  Yes [x]  No [ ]

Indicate  the  number  of  shares outstanding of each of the issuer's classes of
common  stock,  as  of  the  latest  practicable  date.

                 CLASS                     OUTSTANDING AT MARCH 31, 2002
                 -----                     -----------------------------
      COMMON STOCK, $0.01 PAR VALUE                 25,183,487




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<PAGE>
<TABLE>
<CAPTION>
                                   SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
                                                   INDEX

                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                    <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets as of March 31, 2002, and September 30, 2001 . . . . .     2

         Condensed Consolidated Statements of Operations for the three and six months ended March 31,
           2002 and 2001  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3

         Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2002 and
           2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     4

         Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . .     5

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations. . . .    11

Item 3   Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . .    19

PART II- OTHER INFORMATION

Item 1   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20

Item 2   Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20

Item 3   Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20

Item 4   Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . .    20

Item 5   Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    20

Item 6   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    21
</TABLE>


                                      -1-
<PAGE>
<TABLE>
<CAPTION>
PART  I  -  FINANCIAL  INFORMATION
ITEM  1.    FINANCIAL  STATEMENTS


                                         SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
                                         CONDENSED CONSOLIDATED BALANCE SHEETS
                                           (In thousands, except share data)
                                                      (Unaudited)


                                                                                            MARCH 31,    SEPTEMBER 30,
                                                                                              2002           2001
                                                                                           -----------  ---------------
<S>                                                                                        <C>          <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   29,760   $       14,960
  Short-term investments, available-for-sale. . . . . . . . . . . . . . . . . . . . . . .      40,133           60,494
  Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,287            2,018
  Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         637            1,266
                                                                                           -----------  ---------------

Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      72,817           78,738

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,853            1,853
Property and equipment, net of accumulated depreciation of $366 and $375, respectively. .         160              691
Accounts receivable, non current portion. . . . . . . . . . . . . . . . . . . . . . . . .         574            1,566
Long-term equity investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,013            1,484
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         150              168
                                                                                           -----------  ---------------

                                                                                           $   76,567   $       84,500
                                                                                           ===========  ===============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $      176   $          273
  Net liabilities associated with discontinued operations.. . . . . . . . . . . . . . . .       3,933            2,757
  Restructuring accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,520            1,240
  Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,130            2,340
  Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,444            1,444
                                                                                           -----------  ---------------

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8,203            8,054
                                                                                           -----------  ---------------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $0.10 par value, 3,970,000 shares designated, no shares issued and
    outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -                -
  Common stock, $0.01 par value, 100,000,000 shares authorized; 27,473,987 and 27,461,775
    shares issued; 25,183,487 and 25,171,275 shares outstanding, respectively . . . . . .         275              275
  Additional-paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     477,668          477,680
  Deferred stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (800)          (1,645)
  Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . .          (6)            (480)
  Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (399,636)        (390,247)
  Treasury stock, at cost, 2,290,500 and 2,290,500 shares, respectively . . . . . . . . .      (9,137)          (9,137)
                                                                                           -----------  ---------------

Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      68,364           76,446
                                                                                           -----------  ---------------

                                                                                           $   76,567   $       84,500
                                                                                           ===========  ===============
</TABLE>


    The accompanying notes are an integral part of these condensed consolidated
                              financial statements.



                                      -2-
<PAGE>
<TABLE>
<CAPTION>

                                             SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
                                        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                             (In thousands, except per share data)
                                                          (Unaudited)


                                                              THREE MONTHS ENDED MARCH 31,        SIX MONTHS ENDED MARCH 31,
                                                           ----------------------------------  --------------------------------
                                                                 2002              2001             2002             2001
                                                           ----------------  ----------------  ---------------  ---------------
<S>                                                        <C>               <C>               <C>              <C>
Operating expenses:
  Selling and marketing, exclusive of non-cash
    compensation expense of $0, $0, $0 and $0,
    respectively. . . . . . . . . . . . . . . . . . . . .  $             -   $            90   $            -   $          187
  Engineering, exclusive of non-cash compensation
    expense of $0, $0, $0 and $0, respectively. . . . . .                -               150                -              458
  General and administrative, exclusive of non-cash
    compensation expense (benefit) of $395, $(1,237),
    $800 and $(1,570), respectively . . . . . . . . . . .            1,655             2,164            3,082            4,791
  Depreciation. . . . . . . . . . . . . . . . . . . . . .               61               105              126              204
  Non-cash compensation expense (benefit) related to
    stock options . . . . . . . . . . . . . . . . . . . .              395            (1,237)             800           (1,570)
  Provision for impaired assets . . . . . . . . . . . . .              352                 -              352                -
  Restructuring expense . . . . . . . . . . . . . . . . .              502                 -              502            3,900
                                                           ----------------  ----------------  ---------------  ---------------

Total operating expenses. . . . . . . . . . . . . . . . .            2,965             1,272            4,862            7,970
                                                           ----------------  ----------------  ---------------  ---------------

Loss from continuing operations before other income
  (expense), income taxes, discontinued operations and
  extraordinary item. . . . . . . . . . . . . . . . . . .           (2,965)           (1,272)          (4,862)          (7,970)

Other income (expense):
  Interest income . . . . . . . . . . . . . . . . . . . .              416             1,672            1,032            4,310
  Interest expense. . . . . . . . . . . . . . . . . . . .              (18)              (39)             (36)             (85)
  Loss on disposition of equity investments, net. . . . .             (701)          (13,761)            (701)         (13,761)
  Equity in net losses of investee companies. . . . . . .                -               (20)               -             (394)
  Miscellaneous income (expense), net . . . . . . . . . .              (40)               36               (3)            (103)
                                                           ----------------  ----------------  ---------------  ---------------

Loss from continuing operations before income taxes,
  discontinued operations and extraordinary item. . . . .           (3,308)          (13,384)          (4,570)         (18,003)

Provision for income taxes. . . . . . . . . . . . . . . .                -                 -                -                -
                                                           ----------------  ----------------  ---------------  ---------------

Loss from continuing operations before discontinued
  operations and extraodinary item. . . . . . . . . . . .           (3,308)          (13,384)          (4,570)         (18,003)

Discontinued Operations:
  Loss from operations. . . . . . . . . . . . . . . . . .             (901)          (18,277)          (1,829)         (22,712)
  Loss on disposition, net. . . . . . . . . . . . . . . .           (2,400)           (2,728)          (2,990)          (2,728)
Extraordinary Item:
  Gain on settlements of outstanding obligations. . . . .                -             1,326                -            1,326
                                                           ----------------  ----------------  ---------------  ---------------

Net loss. . . . . . . . . . . . . . . . . . . . . . . . .  $        (6,609)  $       (33,063)  $       (9,389)  $      (42,117)
                                                           ================  ================  ===============  ===============

Basic per common share:
  Loss from continuing operations . . . . . . . . . . . .  $         (0.13)  $         (0.54)  $        (0.18)  $        (0.72)
  Discontinued operations . . . . . . . . . . . . . . . .            (0.13)            (0.85)           (0.19)           (1.02)
  Extraordinary item. . . . . . . . . . . . . . . . . . .                -              0.05                -             0.05
                                                           ----------------  ----------------  ---------------  ---------------

  Net loss. . . . . . . . . . . . . . . . . . . . . . . .  $         (0.26)  $         (1.34)  $        (0.37)  $        (1.69)
                                                           ================  ================  ===============  ===============

Shares used to compute basic per common share . . . . . .           25,178            24,762           25,174           24,881
                                                           ================  ================  ===============  ===============
</TABLE>


    The accompanying notes are an integral part of these condensed consolidated
                              financial statements.



                                      -3-
<PAGE>
<TABLE>
<CAPTION>
                                        SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (In thousands)
                                                     (Unaudited)


                                                                                        SIX MONTHS ENDED MARCH 31,
                                                                                     --------------------------------
                                                                                           2002             2001
                                                                                     ----------------  --------------
<S>                                                                                  <C>               <C>
Cash flows from operating activities:
  Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $        (9,389)  $     (42,117)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .            1,829          22,712
    Loss on disposition of discontinued operations. . . . . . . . . . . . . . . . .            2,990           2,728
    Extraordinary item - gain on settlements of outstanding obligations . . . . . .                -          (1,326)
    Provision for impaired assets . . . . . . . . . . . . . . . . . . . . . . . . .              352               -
    Provision for restructuring costs . . . . . . . . . . . . . . . . . . . . . . .              502           3,900
    Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              126             204
    Amortization of deferred stock compensation expense (benefit) . . . . . . . . .              800          (1,570)
    Amortization of deferred debt issuance costs. . . . . . . . . . . . . . . . . .                -              13
    (Gain) loss on disposition of property and equipment. . . . . . . . . . . . . .               48              (9)
    Equity in net losses of investee companies. . . . . . . . . . . . . . . . . . .                -             394
    Loss on disposition of equity investments, net. . . . . . . . . . . . . . . . .              701          13,761
    Gain on disposition of other short-term investments . . . . . . . . . . . . . .               (6)             (2)
    Changes in operating assets and liabilities (net of effect of acquisitions and
      discontinued operations):
      Decrease in accounts receivable, net. . . . . . . . . . . . . . . . . . . . .              723             813
      Decrease in other current assets. . . . . . . . . . . . . . . . . . . . . . .              629             328
      Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . .               18              40
      Decrease in accounts payable and accrued expenses . . . . . . . . . . . . . .           (1,528)         (8,467)
                                                                                     ----------------  --------------

Net cash used in operating activities of continuing operations. . . . . . . . . . .           (2,205)         (8,598)
Net cash used in operating activities of discontinued operations. . . . . . . . . .           (3,533)        (54,955)
                                                                                     ----------------  --------------

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . .           (5,738)        (63,553)
                                                                                     ----------------  --------------

Cash flows from investing activities:
  Proceeds from maturities and sales of short-term investments, net . . . . . . . .           20,595          43,450
  Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . . . .                5               5
  Payments for purchase of equity investments . . . . . . . . . . . . . . . . . . .                -            (766)
  Payment for purchase of property and equipment. . . . . . . . . . . . . . . . . .                -            (676)
                                                                                     ----------------  --------------

Net cash provided by investing activities of continuing operations. . . . . . . . .           20,600          42,013
Net cash provided by (used in) investing activities of discontinued operations. . .               (2)          4,876
                                                                                     ----------------  --------------

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . .           20,598          46,889
                                                                                     ----------------  --------------

Cash flows from financing activities:
  Proceeds from purchase by employee stock purchase plan. . . . . . . . . . . . . .                -              77
  Payment for purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . .                -          (6,858)
  Payment of long-term debt and liability related to anniversary issuance of
    common stock to former Intelligent Communications, Inc. stockholders. . . . . .                -          (2,490)
  Principal payments of long-term debt. . . . . . . . . . . . . . . . . . . . . . .                -            (660)
                                                                                     ----------------  --------------

Net cash used in financing activities of continuing operations. . . . . . . . . . .                -          (9,931)
Net cash used in financing activities of discontinued operations. . . . . . . . . .              (60)         (4,372)
                                                                                     ----------------  --------------

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . .              (60)        (14,303)
Foreign exchange effect on cash and cash equivalents. . . . . . . . . . . . . . . .                -             (10)
                                                                                     ----------------  --------------

Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . .           14,800         (30,977)
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . . . .           14,960          44,731
                                                                                     ----------------  --------------

Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . .  $        29,760   $      13,754
                                                                                     ================  ==============
</TABLE>


    The accompanying notes are an integral part of these condensed consolidated
                              financial statements.


                                      -4-
<PAGE>
                     SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

     The  financial  information  included  herein  is  unaudited, however, such
     information reflects all adjustments (consisting solely of normal recurring
     adjustments,  except  as  otherwise  noted)  which  are,  in the opinion of
     management, necessary for a fair presentation of the condensed consolidated
     statements  of  financial  position as of March 31, 2002, and September 30,
     2001,  and  results  of  operations  and cash flows for the interim periods
     ended  March  31,  2002  and  2001.

     SoftNet  Systems,  Inc.'s  annual  report  on Form 10-K for the fiscal year
     ended  September  30,  2001,  as  amended and filed with the Securities and
     Exchange  Commission,  should  be read in conjunction with the accompanying
     condensed  consolidated  financial  statements.  The condensed consolidated
     balance  sheet  as  of September 30, 2001 was derived from SoftNet Systems,
     Inc.  and  subsidiaries  (the  "Company")  audited  consolidated  financial
     statements.

     The  results  of operations for the three months and six months ended March
     31,  2002  are  based  in part on estimates that may be subject to year-end
     adjustments  and  are  not  necessarily  indicative  of  the  results to be
     expected  for  the  full  year.

     The  condensed  consolidated  balance  sheet  as of September 30, 2001, the
     condensed  consolidated  statements  of operations for the three months and
     six  months ended March 31, 2001, and the condensed consolidated statements
     of  cash  flows  for  the  six  months  ended  March  31,  2001,  have been
     reclassified  for the effects of the discontinued operations of Intelligent
     Communications, Inc. Additionally, certain reclassifications have been made
     to  prior  period  financial  statements in order to conform to the current
     period  presentation.

2.   DISCONTINUED  OPERATIONS

     Discontinued  Operations of Intelligent Communications, Inc. ("Intellicom")

     On March 29, 2002, the Company and its wholly-owned subsidiary, Intellicom,
     entered into an agreement to sell its operating business and certain assets
     to  Loral  Cyberstar, Inc. Following the sale of its operating business and
     certain  assets  to Loral Cyberstar, Inc., the Company's Board of Directors
     unanimously  agreed to cease the operations of Intellicom on April 3, 2002.
     Subsequently  on  April  22,  2002, Intellicom entered into an agreement to
     sell  certain  assets to Native Intellicom, Inc., a wholly-owned subsidiary
     of  the  Pinoleville  Band  of  Pomo  Indians,  for  cash;  subject  to the
     termination  of  Intellicom's  lease  for  its  facility  in  Livermore,
     California.  The  operating results of Intellicom have been segregated from
     continuing  operations  and  are  reported  as  a  loss  from  discontinued
     operations on the condensed consolidated statements of operations. Although
     it  is difficult to predict the final results, the loss on disposition from
     discontinued  operations  includes  management's estimates of costs to wind
     down  the  business,  costs  to settle its outstanding liabilities, and the
     proceeds  from  the  sale  of  assets.  The  actual  results  could  differ
     materially  from these estimates. For the three months and six months ended
     March  31,  2002,  the Company recorded an estimated loss on disposition of
     Intellicom of $3,300,000. The assets and liabilities of such operations are
     reflected in net liabilities associated with discontinued operations of the
     accompanying  condensed  consolidated  balance sheets as of March 31, 2002,
     and  September  30,  2001.

     Operating  results  of  Intellicom  are  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED MARCH 31,        SIX MONTHS ENDED MARCH 31,
                                 ----------------------------------  --------------------------------
                                       2002              2001             2002             2001
                                 ----------------  ----------------  ---------------  ---------------
<S>                              <C>               <C>               <C>              <C>
     Revenues . . . . . . . . .  $           612   $         1,005   $        1,463   $        2,400
                                 ================  ================  ===============  ===============

     Loss before income taxes .  $          (901)  $       (18,277)  $       (1,829)  $      (22,712)
     Provision for income taxes                -                 -                -                -
                                 ----------------  ----------------  ---------------  ---------------

     Net loss . . . . . . . . .  $          (901)  $       (18,277)  $       (1,829)  $      (22,712)
                                 ================  ================  ===============  ===============
</TABLE>



                                      -5-
<PAGE>
     Net  assets  (liabilities)  associated  with  discontinued  operations  of
     Intellicom  at  March  31, 2002, and September 30, 2001, are as follows (in
     thousands):

<TABLE>
<CAPTION>
                                                             MARCH 31,   SEPTEMBER 30,
                                                               2002           2001
                                                            -----------  --------------
<S>                                                         <C>          <C>
     Current assets:
       Accounts receivable, net. . . . . . . . . . . . . .  $      227   $           91
       Inventory, net. . . . . . . . . . . . . . . . . . .         148              537
       Other current assets. . . . . . . . . . . . . . . .           3               66
                                                            -----------  --------------

     Total current assets. . . . . . . . . . . . . . . . .         378              694

     Property, plant and equipment, net. . . . . . . . . .          50            1,644
     Restricted cash . . . . . . . . . . . . . . . . . . .         639              639
     Accounts receivable, non current portion. . . . . . .          12                -
     Other assets. . . . . . . . . . . . . . . . . . . . .          39               49
                                                            -----------  --------------

     Total assets. . . . . . . . . . . . . . . . . . . . .  $    1,118   $        3,026
                                                            ===========  ==============

     Current liabilities:
       Accounts payable. . . . . . . . . . . . . . . . . .  $      250   $          423
       Estimated closure costs . . . . . . . . . . . . . .       1,833                -
       Restructuring accrual . . . . . . . . . . . . . . .         206              512
       Other accrued expenses. . . . . . . . . . . . . . .         299              689
                                                            -----------  --------------

     Total liabilities . . . . . . . . . . . . . . . . . .  $    2,588   $        1,624
                                                            ===========  ==============

     Net assets (liabilities) associated with discontinued
       operations. . . . . . . . . . . . . . . . . . . . .  $   (1,470)  $        1,402
                                                            ===========  ==============
</TABLE>



     In an effort to bring Intellicom to profitability, the Company initiated an
     overall  cost  cutting  program and organizational restructuring during May
     2001.  As  a  result  of  the  organizational  restructuring,  the  Company
     established a $1,290,000 retructuring reserve, which consisted of severance
     costs  for  affected employees and shut down costs for certain offices, and
     is  reflected in net liabilities associated with discontinued operations of
     the  condensed  consolidated  balance  sheet  as  of  March  31,  2002, and
     September  30,  2001.  Through  March  31,  2002,  $1,084,000  of severance
     payments,  and  write  offs  of leasehold improvements and office furniture
     related  to  the  various  offices  have  been applied to this reserve. The
     remaining  $206,000 will be utilized for severance of identified employees.

     Discontinued  Operations  of  Aerzone  Corporation  ("Aerzone")

     On  December  19,  2000,  the  Company  decided  to discontinue the Aerzone
     business in light of significant long-term capital needs and the difficulty
     of  securing  the  necessary  financing because of the current state of the
     financial  markets.  The  loss  from disposition of discontinued operations
     includes  management's  estimates  of  the remaining costs to wind down the
     business  and  costs to settle its outstanding liabilities. As of March 31,
     2002,  Aerzone  had substantially wound down its activities. The assets and
     liabilities  of such operations are reflected in net liabilities associated
     with  discontinued  operations  of  the accompanying condensed consolidated
     balance  sheets  as  of  March  31,  2002,  and  September  30,  2001.


                                      -6-
<PAGE>
     Net  liabilities  associated  with discontinued operations of Aerzone as of
     March  31,  2002,  and  September  30, 2001, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              MARCH 31,   SEPTEMBER 30,
                                                                 2002          2001
                                                              ----------  --------------
<S>                                                           <C>         <C>
     Current assets:
       Other current assets. . . . . . . . . . . . . . . . .  $        -  $           22
                                                              ----------  --------------

     Total current assets. . . . . . . . . . . . . . . . . .           -              22

     Other assets. . . . . . . . . . . . . . . . . . . . . .           5               2
                                                              ----------  --------------

     Total assets. . . . . . . . . . . . . . . . . . . . . .  $        5  $           24
                                                              ==========  ==============

     Current liabilities:
       Estimated closure costs . . . . . . . . . . . . . . .  $    1,362  $        2,039
       Accrued expenses. . . . . . . . . . . . . . . . . . .          53              54
       Laptop Lane Limited acquisition reserve . . . . . . .          27              27
                                                              ----------  --------------

     Total liabilities . . . . . . . . . . . . . . . . . . .  $    1,442  $        2,120
                                                              ==========  ==============

     Net liabilities associated with discontinued operations  $    1,437  $        2,096
                                                              ==========  ==============
</TABLE>


     Discontinued  Operations  of  ISP  Channel,  Inc.  ("ISP  Channel")

     On  December  7,  2000, the Company's Board of Directors approved a plan to
     discontinue providing cable-based Internet services through its ISP Channel
     subsidiary  by December 31, 2000, because of (1) consolidation in the cable
     television  industry  made  it  difficult  for  ISP  Channel to achieve the
     economies  of  scale necessary to provide such services profitably, and (2)
     the  Company  was  no  longer able to bear the costs of maintaining the ISP
     Channel.  The  loss  from  discontinued  operations  includes  management's
     estimates of the remaining costs to wind down the business, costs to settle
     its  outstanding  liabilities, and the proceeds from the sale of assets. As
     of March 31, 2002, ISP Channel had substantially wound down its activities.
     For  the  three  months  and  six  months ended March 31, 2002, the Company
     reduced  the  estimated  loss  on  disposition  reserve  of  ISP Channel by
     $900,000,  primarily  as  a  result of the Company experiencing better than
     previously  estimated  contract  settlements. The assets and liabilities of
     such  operations  are  reflected  in  net  liabilities  associated  with
     discontinued  operations of the accompanying condensed consolidated balance
     sheets  as  of  March  31,  2002,  and  September  30,  2001.

     Net  liabilities  associated with discontinued operations of ISP Channel as
     of  March 31, 2002, and September 30, 2001, are as follows (in thousands):]

<TABLE>
<CAPTION>
                                                              MARCH 31,   SEPTEMBER 30,
                                                                 2002          2001
                                                              ----------  --------------
<S>                                                           <C>         <C>
     Current assets:
       Short-term investments, available-for-sale. . . . . .  $        -  $           20
       Other current assets. . . . . . . . . . . . . . . . .           1               2
                                                              ----------  --------------

     Total assets. . . . . . . . . . . . . . . . . . . . . .  $        1  $           22
                                                              ==========  ==============

     Current liabilities:
       Accrued expenses. . . . . . . . . . . . . . . . . . .  $      320  $          422
       Estimated closure costs . . . . . . . . . . . . . . .         188           1,663
                                                              ----------  --------------

     Total liabilities . . . . . . . . . . . . . . . . . . .  $      508  $        2,085
                                                              ==========  ==============

     Net liabilities associated with discontinued operations  $      507  $        2,063
                                                              ==========  ==============
</TABLE>

     Discontinued  Operations  of  Micrographic  Technology  Corporation ("MTC")

     As a result of a preliminary arbitration decision related to a dispute with
     Applications  Informatiques Multimedia and a dispute related to the sale of
     MTC to Global Information Distribution GmbH ("GID"), the Company recorded a
     $590,000  estimated  loss  on disposition reserve of MTC for the six months
     ended March 31, 2002. MTC was previously owned by the Company, and was sold
     to  GID on September 30, 1999. The estimated loss on disposition reserve of
     MTC is reflected in net liabilities associated with discontinued operations
     of  the  condensed consolidated balance sheet as of March 31, 2002, and the
     corresponding  charge  is  reflected in loss on disposition of discontinued
     operations  of  the  condensed consolidated statement of operations for the
     six  months  ended  March  31,  2002.


                                      -7-
<PAGE>
     Net  liabilities associated with discontinued operations of MTC as of March
     31,  2002,  and  September  30,  2001,  are  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                                  MARCH 31,  SEPTEMBER 30,
                                                                    2002        2001
                                                                  ---------  -------------
<S>                                                               <C>        <C>
     Current  liabilities:
       Estimated  closure  costs . . . . . . . . . . . . . . . .  $     519  $           -
                                                                  ---------  -------------

     Net  liabilities  associated  with  discontinued operations  $     519  $           -
                                                                  =========  =============
</TABLE>

3.   RESTRUCTURING  CHARGE

     On  December  28, 2000, the Company's Board of Directors approved a plan to
     reduce  its  corporate headquarters staff in conjunction with discontinuing
     the  Aerzone  and  ISP  Channel  businesses.  As a result of this plan, the
     Company  established  a  $3,900,000  restructuring reserve, which consisted
     primarily  of severance costs for affected employees. Subsequently, for the
     three months and six months ended March 31, 2002, the Company increased the
     restructuring  reserve  by  $502,000  for  additional  estimated  lease
     termination  costs  associated with Company headquarters. The restructuring
     reserve is reflected in restructuring accrual on the condensed consolidated
     balance  sheet  as of March 31, 2002, and September 30, 2001. Through March
     31,  2002,  $2,882,000  of  severance  payments  has  been  applied to this
     reserve.  The  remaining of $1,520,000 will be utilized primarily for lease
     termination  costs  associated  with  Company  headquarters.

4.   CASH,  CASH  EQUIVALENTS  AND  SHORT-TERM INVESTMENTS, AVAILABLE-FOR-SALE

     Cash  equivalents  consist of securities with maturities of three months or
     less  at  date  of purchase. Short-term investments, available-for-sale are
     carried at fair value based on quoted market prices. Net unrealized holding
     losses  amounted  to $6,000, which is based on market value as of March 31,
     2002,  and  is  reflected  in  accumulated  other comprehensive loss on the
     condensed  consolidated  balance  sheet  as  of  March  31,  2002.

     Short-term investments, available-for-sale as of March 31, 2002, consist of
     $40,100,000  of  debt securities that mature between one to five years, and
     $33,000 of common stock. Cash, cash equivalents and short-term investments,
     available-for-sale  consist  of  the  following  as  of  March 31, 2002 (in
     thousands):

<TABLE>
<CAPTION>
                                                           UNREALIZED    UNREALIZED
                                                   COST       GAIN          LOSS      MARKET
                                                  -------  -----------  ------------  -------
<S>                                          <C>      <C>          <C>           <C>

     Cash and cash equivalents:
       Cash. . . . . . . . . . . . . . . . . . .  $ 3,751  $         -  $         -   $ 3,751
       Money market funds. . . . . . . . . . . .   26,009            -            -    26,009
                                                  -------  -----------  ------------  -------

                                                  $29,760  $         -  $         -   $29,760
                                                  =======  ===========  ============  =======

     Short-term investments, available-for-sale:
       Market auction securities . . . . . . . .  $40,100  $         -  $         -   $40,100
       Common stock. . . . . . . . . . . . . . .       39            -           (6)       33
                                                  -------  -----------  ------------  -------

                                                  $40,139  $         -  $        (6)  $40,133
                                                  =======  ===========  ============  =======
</TABLE>

5.   EQUITY  INVESTMENTS

     The  Company  recognized a loss of $230,000 related to the 1,000,000 SkyNet
     Global  Limited  common  stock  shares  and $471,000 related to the 400,000
     SkyNet  Global Limited preference stock shares for the three months and six
     months  ended  March 31, 2002. The loss is reflected in loss on disposition
     of equity investments in the accompanying condensed consolidated statements
     of  operations  for  the  three months and six months ended March 31, 2002.


                                      -8-
<PAGE>
6.   COMMITMENTS  AND  CONTINGENCIES

     Legal Proceedings

     On  September  26,  2001,  Lucent  Technologies  Inc. ("Lucent") brought an
     action  in  San Francisco Superior Court against the Company, alleging that
     the  Company  breached a contract by failing to purchase Lucent's shares in
     Freewire  Networks, Inc. ("Freewire") and claiming damages of approximately
     $3.5  million,  which may increase over time. On December 31, 2001, the San
     Francisco  Superior  Court issued an order to deny Lucent's application for
     writ  of  attachment,  finding  that  Lucent  had  not  shown a substantial
     probability  that  it  will  prevail on its claim. The Company continues to
     believe  that  Lucent's  claims  are  without  merit and will contest these
     claims  vigorously.

     On  November  9,  2001,  Nokia,  Inc.  ("Nokia") commenced an action in San
     Francisco  Superior  Court against the Company and Aerzone, alleging breach
     of  contract  arising  out  of the Aerzone's proposed operations in certain
     airports.  Nokia  seeks  approximately $2.1 million in damages. The Company
     believes that Nokia's claims are without merit and intends to contest these
     claims  vigorously.

     On  October  30,  2001,  GID commenced a demand for arbitration against the
     Company, alleging breach of contract and warranties relating to the sale of
     MTC  to GID on September 30, 1999. GID claims approximately $2.1 million in
     damages. The Company believes GID's claims are without merit and intends to
     contest  these  claims  vigorously.

     The  Company  is also involved in other legal proceedings and claims, which
     arise in the ordinary course of its continuing and discontinued businesses.
     The  Company  believes  the  results  of the above noted legal proceedings,
     other  pending  legal  proceedings  and  claims  are not expected to have a
     material  adverse  effect on its results of operations, financial condition
     or  cash  flows.

7.   COMPREHENSIVE  LOSS

     The  components  of  comprehensive loss for the three months and six months
     ended  March  31,  2002  and  2001,  are  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,        SIX MONTHS ENDED MARCH 31,
                                           ----------------------------------  --------------------------------
                                                 2002              2001             2002             2001
                                           ----------------  ----------------  ---------------  ---------------
<S>                                        <C>               <C>               <C>              <C>
     Net loss . . . . . . . . . . . . . .  $        (6,609)  $       (33,063)  $       (9,389)  $      (42,117)
     Unrealized gain (loss) on securities              531            (1,322)             458           (3,317)
     Foreign currency translation
       adjustments. . . . . . . . . . . .                -               (38)              16              (10)
                                           ----------------  ----------------  ---------------  ---------------

     Comprehensive loss . . . . . . . . .  $        (6,078)  $       (34,423)  $       (8,915)  $      (45,444)
                                           ================  ================  ===============  ===============
</TABLE>

8.   SUPPLEMENTAL  CASH  FLOW  INFORMATION

     The  supplemental  cash flow information for the six months ended March 31,
     2002  and  2001,  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                                                        SIX MONTHS ENDED MARCH 31,
                                                                                     --------------------------------
                                                                                          2002             2001
                                                                                     ---------------  ---------------
<S>                                                                                  <C>              <C>
     Cash paid:
       Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $           72             $355
       Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               -                -

     Non-cash investing and financing activities:
       Common stock issued for-
         Payment of promissory note and related interest, and business acquisition
           liability to former Intelligent Communications, Inc. stockholders. . . .               -              199
         Payment of affiliate contract termination fees with Mediacom LLC . . . . .               -            1,500
       Decrease in additional-paid-in capital associated with termination of common
         stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             (11)         (12,740)
       Unrealized gain (loss) on short-term investments . . . . . . . . . . . . . .             458           (3,317)
</TABLE>


                                      -9-
<PAGE>
9.   SEGMENT  INFORMATION

     As  a result of the April 3, 2002, unanimous consent by the Company's Board
     of  Directors  to  cease  the  operations  of  Intellicom,  the  Company
     discontinued its last business segment. Accordingly, no segment information
     is  disclosed  in  the  accompanying  notes to these condensed consolidated
     financial  statements.


                                      -10-
<PAGE>
ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS

This  Form  10-Q  contains  forward-looking  statements  that  involve risks and
uncertainties.  The  actual  consolidated  results  of SoftNet Systems, Inc. and
Subsidiaries  (the  "Company")  could  differ significantly from those set forth
herein.  Factors that could cause or contribute to such differences include, but
are  not  limited  to,  those  discussed  in  "Factors  Affecting  the Company's
Operating  Results" as set forth in the Company's annual report on Form 10-K for
the  fiscal  year  ended  September  30,  2001, as filed with the Securities and
Exchange  Commission,  and  "Management's  Discussion  and Analysis of Financial
Condition  and  Results  of  Operations" as well as those discussed elsewhere in
this quarterly report. Statements contained herein that are not historical facts
are  forward-looking  statements  that are subject to the safe harbor created by
the  Private Securities Litigation Reform Act of 1995. Words such as "believes",
"anticipates",  "expects", "intends", "estimates", "likelihood", "unlikelihood",
"assessment",  and  "foreseeable"  and other similar expressions are intended to
identify  forward-looking  statements,  but  are  not  the  exclusive  means  of
identifying  such  statements.  A  number  of  important factors could cause the
Company's  actual  results for the year ending September 30, 2002, and beyond to
differ  materially  from  past  results  and  those  expressed or implied in any
forward-looking  statements  made  by the Company, or on its behalf. The Company
undertakes  no  obligation  to  release publicly the results of any revisions to
these  forward-looking  statements  that  may  be  made  to  reflect  events  or
circumstances  after  the  date  hereof  or  to  reflect  the  occurrence  of
unanticipated  events.

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with, and is qualified in its entirety
by  reference  to,  the Consolidated Financial Statements of the Company and the
related Notes thereto appearing in our annual report on Form 10-K for the fiscal
year  ended  September  30,  2001,  as  filed  with  the Securities and Exchange
Commission and our Condensed Consolidated Financial Statements and related Notes
thereto  appearing  elsewhere  in  this  quarterly  report.

OVERVIEW

On  December  7,  2000,  the  Company's  Board  of  Directors approved a plan to
discontinue  its ISP Channel, Inc. ("ISP Channel") operations because of (1) the
consolidation in the cable industry made it difficult for ISP Channel to achieve
the  economies  of  scale necessary to provide such services profitably, and (2)
the Company was no longer able to bear the costs of maintaining the ISP Channel.
Subsequently  on  December 19, 2000, the Company's Board of Directors approved a
plan  to  discontinue  its Aerzone Corporation ("Aerzone") business in light of,
among  other  things,  significant long-term capital needs and the difficulty of
securing  the  necessary  financing  because  of  the  financial  markets.  In
conjunction  with  discontinuing  the  ISP  Channel  and Aerzone businesses, the
Company's Board of Directors on December 28, 2000, approved a plan to reduce its
corporate  headquarters  staff.

As  a  result  of  the Company's Board of Directors decisions, the Company wound
down  the  ISP  Channel  and  Aerzone  businesses,  and  reduced  its  corporate
headquarters  staff.  As  of  March  31,  2002,  the  ISP  Channel  and  Aerzone
businesses,  including  Laptop  Lane  Limited,  were  substantially  wound down.
Additionally,  the  Company  has retained Bear, Stearns & Co., Inc. to assist in
exploring  the Company's strategic options. As previously announced, the Company
has  expanded  the  scope  of  its  exploration  of strategic options to include
transactions  that  would  focus on the Company's cash resources and status as a
publicly  traded  company on the NASDAQ National Market in addition to potential
partners  expecting  to use the Company's net operating losses in the near term.
The  Company  has  received  numerous inquiries in response to its press release
announcing  the expansion of its scope in exploration of strategic partners. The
Company  expects  to  make  a decision on its future direction shortly, and will
then  establish  a  date  for  any  stockholder  vote  required on that decision
promptly  thereafter.

On  March  29,  2002,  the  Company and its wholly-owned subsidiary, Intelligent
Communications,  Inc.  ("Intellicom"),  entered  into  an  agreement to sell its
operating  business  and  certain  assets to Loral Cyberstar, Inc. Following the
sale  of its operating business and certain assets to Loral Cyberstar, Inc., the
Company's  Board  of  Directors  unanimously  agreed  to cease the operations of
Intellicom  on April 3, 2002. Subsequently on April 22, 2002, Intellicom entered
into  an  agreement  to  sell  certain  assets  to  Native  Intellicom,  Inc., a
wholly-owned  subsidiary  of  the  Pinoleville  Band  of Pomo Indians, for cash;
subject  to the termination of Intellicom's lease for its facility in Livermore,
California.


                                      -11-
<PAGE>
The  Company  reports operating expenses in several categories:  (i) selling and
marketing;  (ii)  engineering; and (iii) general and administrative costs.  Also
included  in  operating  expenses  are  depreciation  and  non-cash compensation
expense  related  to  stock  options.  Non-cash  compensation expense related to
stock  options  relates  primarily  to  the  amortization  of  deferred  stock
compensation  resulting  from  below  market value stock options granted between
October  1998  and  March  1999.

The  results  of  operations for the three months and six months ended March 31,
2001,  have  been  reclassified  for  the  effects of discontinued operations of
Intellicom.

CRITICAL  ACCOUNTING  POLICIES

The  preparation of consolidated financial statements and related disclosures in
conformity with generally accepted accounting principles in the United States of
America  requires  management  to make estimates and assumptions that affect the
reported  amounts  of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of  the revenues and expenses during the reporting period.  Actual results could
differ  from  those  estimates.  The  Company  believes  the  following critical
accounting  policies  are  significantly  affected by judgments, assumptions and
estimates  used  in  preparation  of  its  condensed  consolidated  financial
statements.  For  a  detailed  discussion  on the application of these and other
accounting  policies, see Note 2 to the consolidated financial statements in the
Company's  annual  report  on  Form 10-K for the fiscal year ended September 30,
2001.

Discontinued  Operations

The  Company  accounts  for  discontinued operations in accordance to Accounting
Principles  Board Opinion No. 30 ("APB 30"), Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of Business, and Extraordinary,
Unusual  and  Infrequently Occurring Events and Transactions.  Under APB 30, the
Company  accrued  estimates  of  expected  liabilities  related  to discontinued
operations  through its eventual discharge.  The estimated remaining liabilities
related to discontinued operations include contract terminations, litigation and
loss  from  operations  subsequent  to  March 31, 2002.  The Company reviews the
estimated  closure  costs liability on a quarterly basis to determine changes in
the  costs  of  the  discontinued  operations  activities.

Restructuring  Expense

The  Company  recorded  restructuring  expenses  related  to an approved plan to
reduce  corporate  headquarters  staff  and to relocate its corporate offices in
conjunction  with  discontinuing  the  Aerzone,  ISP  Channel  and  Intellicom
businesses.  These restructuring expenses are based on estimates of the expected
costs  associated  with  employee  severance,  lease  terminations, and facility
relocation.  The  Company reviews the estimated restructuring costs accrual on a
quarterly  basis  to  determine  changes  in  the  costs  of  the  restructuring
activities.

Impairment  of  Long-lived  Assets

The  Company  evaluates long-lived assets for impairment whenever current events
or  changes  in  circumstances,  as defined in Statement of Financial Accounting
Standards  No.  121  ("SFAS  121"),  Accounting for the Impairment of Long-Lived
Assets  and  for Long-Lived Assets to be Disposed of, indicate that the carrying
value  of  an  asset  may not be recoverable based on expected undiscounted cash
flows  attributable  to that asset.  The amount of any impairment is measured as
the  difference  between  the  carrying value and the fair value of the impaired
asset.

Short-term  Investments

The  Company  accounts  for  its  short-term  investments  in  debt  and  equity
securities  under  Statement  of  Financial  Accounting Standards No. 115 ("SFAS
115"),  Accounting  for  Certain  Investments  in  Debt  and  Equity Securities.
Short-term  investments  generally  consist  of  highly  liquid  securities with
original  maturities  in excess of three months.  The Company has classified its
short-term  investments  as  available-for-sale  securities.  These  short-term
investments  are  carried  at  fair  value  based  on  quoted market prices with
unrealized  gains and losses reported in accumulated other comprehensive loss in
the  accompanying  condensed  consolidated  balance  sheets.  Realized gains and
losses  on short-term investments are computed using the specific identification
method  and  are  reported  in  miscellaneous  income  (expense),  net  in  the
accompanying condensed consolidated statements of operations.  Declines in value
judged  to  be  other-than-temporary  is  determined  based  on  the  specific
identification  method  and  are  reported  in  loss  in  disposition  of equity
investments in the accompanying condensed consolidated statements of operations.


                                      -12-
<PAGE>
RESULTS  OF  CONTINUING  OPERATIONS  FOR  THE THREE MONTHS ENDED MARCH 31, 2002,
COMPARED  TO  THE  THREE  MONTHS  ENDED  MARCH  31,  2001

Selling  and  Marketing.  The Company incurred no selling and marketing expenses
-----------------------
for  the  three  months  ended March 31, 2002, compared to $90,000 for the three
months  ended  March  31,  2001, as a result of eliminating the public relations
department  associated with the December 28, 2000, corporate restructuring plan.

Engineering.  The  Company incurred no engineering expenses for the three months
-----------
ended  March 31, 2002, compared to $150,000 for the three months ended March 31,
2001,  as a result of eliminating the corporate technology department associated
with  the  December  28,  2000,  corporate  restructuring  plan.

General  and  Administrative.  Consolidated  general and administrative expenses
----------------------------
decreased  $509,000,  or 24%, to $1,655,000 for the three months ended March 31,
2002,  compared  to  $2,164,000  for  the  three  months  ended  March 31, 2001,
primarily  due  to  reduced  expenses resulting from staff reductions associated
with  the  December  28,  2000,  corporate  restructuring  plan.

Depreciation.  Consolidated  depreciation  expense decreased $44,000, or 42%, to
------------
$61,000  for the three months ended March 31, 2002, compared to $105,000 for the
three months ended March 31, 2001, primarily due to reduced depreciation expense
resulting  from  sales  of  property  and  write  off  of  disposed  property.

Non-Cash  Compensation  Expense/Benefit  Related  to Stock Options.  The Company
------------------------------------------------------------------
recognized  a non-cash compensation expense related to stock options of $395,000
for  the  three  months  ended March 31, 2002, compared to non-cash compensation
benefit  related to stock options of $1,237,000 for the three months ended March
31,  2001.  For  the  three  months  ended  March  31,  2002  and 2001, non-cash
compensation  expense/benefit  related  to  stock  options  issued to employees.

Non-cash  compensation  benefits  are  recognized  following  the  reversal  of
previously recognized expenses related to terminated unvested stock options with
a  cliff vesting feature. Non-cash compensation expense related to stock options
should continue to decrease, as the Company continues to reduce its staff due to
its  discontinued  operations  and  corporate  restructuring.

Provision  for Impaired Assets.  The Company recognized a charge of $352,000 for
-------------------------------
the  three  months  ended March 31, 2002, as a result of writing off its current
accounting  software.  The Company will be migrating from its current accounting
software  to  an  off-the-shelf  accounting  software.

Restructuring  Expense.  The  Company  increased  the  restructuring  reserve by
-----------------------
$502,000  for  the  three months ended March 31, 2002, as a result of additional
estimated  lease  termination  costs  associated  with Company headquarters.  At
March  31,  2002,  restructuring  accrual  of  $1,520,000  remained outstanding.

Interest  Income.  Consolidated interest income decreased $1,256,000, or 75%, to
----------------
$416,000  for  the three months ended March 31, 2002, compared to $1,672,000 for
the  three months ended March 31, 2001, as a result of lower interest rates, and
decrease  in  cash,  cash  equivalents,  and  short-term  investments,
available-for-sale.

Interest  Expense.  Consolidated  interest expense decreased $21,000, or 54%, to
-----------------
$18,000  for  the three months ended March 31, 2002, compared to $39,000 for the
three  months  ended  March  31,  2001.  This  decrease  is primarily due to the
reduction  of interest expense resulting from the payment of the 8.5% promissory
note  to  the  former  Intellicom  stockholders.

Loss  on  Disposition  of  Equity Investments.  The Company recognized a loss on
----------------------------------------------
disposition  of  equity investments of $701,000 for the three months ended March
31,  2002, consisting of $230,000 related to the 1,000,000 SkyNet Global Limited
common  stock  shares  and $471,000 related to the 400,000 SkyNet Global Limited
preference stock shares.  For the three months ended March 31, 2001, the Company
recognized  a  charge  of  $13,761,000, consisting of a $768,000 write down of a
note  receivable  and  related  interest,  and  $12,993,000  of  write-downs and
realized  losses related to various short-term and long-term equity investments.

Equity  in  Net  Losses of Investee Companies.  The Company recognized equity in
----------------------------------------------
net losses of investee companies of $20,000 for the three months ended March 31,
2001.  The  Company did not incur any equity in net losses of investee companies
for  the  three  months  ended March 31, 2002, as a result of the sale and write
offs  of  investee  companies accounted for under the equity method for the year
ended  September  30,  2001.

Miscellaneous Income/Expense, Net.  Consolidated miscellaneous expense increased
---------------------------------
$76,000  to  $40,000  for  the  three  months  ended March 31, 2002, compared to
consolidated  miscellaneous  income  of $36,000 for the three months ended March
31,  2001.  This  increase is primarily due to losses incurred from the disposal
of  property  for  the  three  months  ended  March  31,  2002.


                                      -13-
<PAGE>
Income  Taxes.  The  Company  made  no  provision for income taxes for the three
-------------
months  ended  March  31, 2002 and 2001, as a result of the Company's continuing
losses.

Loss Attributed to Discontinued Operations.  The Company recognized a $3,301,000
-------------------------------------------
loss  attributed to discontinued operations for the three months ended March 31,
2002,  compared  to  a  loss of $21,005,000 for the three months ended March 31,
2001.  For  the  three  months  ended  March  31,  2002,  the loss attributed to
discontinued  operations  consisted  of  a  $3,300,000  loss  on  disposition of
Intellicom,  a  $901,000 loss from operations of Intellicom, and a $900,000 gain
on  disposition  of ISP Channel, resulting from the lower than anticipated costs
of  closing  ISP  Channel.  For  the three months ended March 31, 2001, the loss
attributed  to  discontinued  operations  consisted  of  a $18,277,000 loss from
operations  of  Intellicom, a $6,008,000 gain on the disposition of ISP Channel,
resulting  from  lower  than  anticipated  costs  of  closing ISP Channel, and a
$8,736,000  loss  on  the  disposition  of Aerzone, resulting primarily from the
reduction  of  the  anticipated  sales  price  of  Laptop  Lane  Limited.

Extraordinary  Item-Gain  on Settlement of Obligation.  The Company recognized a
------------------------------------------------------
gain of $1,326,000 for the three months ended March 31, 2001, resulting from the
cash  payment  made  in  lieu  of  the  Company's obligation to pay off the 8.5%
promissory  note  and  interest, and to settle business acquisition liability to
former  Intellicom  stockholders  with  common  stock.

Net  Loss.  The Company had a net loss of $6,609,000, or a net loss per share of
---------
$0.26,  for  the  three  months  ended March 31, 2002, compared to a net loss of
$33,063,000,  or a net loss per share of $1.34, for the three months ended March
31,  2001.

RESULTS  OF  CONTINUING  OPERATIONS  FOR  THE  SIX  MONTHS ENDED MARCH 31, 2002,
COMPARED  TO  THE  SIX  MONTHS  ENDED  MARCH  31,  2001

Selling  and  Marketing.  The Company incurred no selling and marketing expenses
-----------------------
for the six months ended March 31, 2002, compared to $187,000 for the six months
ended March 31, 2001, as a result of eliminating the public relations department
associated  with  the  December  28,  2000,  corporate  restructuring  plan.

Engineering.  The  Company  incurred  no engineering expenses for the six months
-----------
ended  March  31,  2002, compared to $458,000 for the six months ended March 31,
2001,  as a result of eliminating the corporate technology department associated
with  the  December  28,  2000,  corporate  restructuring  plan.

General  and  Administrative.  Consolidated  general and administrative expenses
----------------------------
decreased  $1,709,000,  or 36%, to $3,082,000 for the six months ended March 31,
2002,  compared to $4,791,000 for the six months ended March 31, 2001, primarily
due  to  reduced  expenses  resulting  from staff reductions associated with the
December  28,  2000,  corporate  restructuring  plan.

Depreciation.  Consolidated  depreciation  expense decreased $78,000, or 38%, to
------------
$126,000  for  the six months ended March 31, 2002, compared to $204,000 for the
six  months  ended March 31, 2001, primarily due to reduced depreciation expense
resulting  from  sales  of  property  and  write  off  of  disposed  property.

Non-Cash  Compensation  Expense/Benefit  Related  to Stock Options.  The Company
------------------------------------------------------------------
recognized  a non-cash compensation expense related to stock options of $800,000
for  the  six  months  ended  March  31, 2002, compared to non-cash compensation
benefit  related  to  stock options of $1,570,000 for the six months ended March
31,  2001.  For  the  six  months  ended  March  31,  2002  and  2001,  non-cash
compensation  expense/benefit  related  to  stock  options  issued to employees.

Non-cash  compensation  benefits  are  recognized  following  the  reversal  of
previously recognized expenses related to terminated unvested stock options with
a  cliff vesting feature. Non-cash compensation expense related to stock options
should continue to decrease, as the Company continues to reduce its staff due to
its  discontinued  operations  and  corporate  restructuring.

Provision  for Impaired Assets.  The Company recognized a charge of $352,000 for
-------------------------------
the  six  months  ended  March  31, 2002, as a result of writing off its current
accounting  software.  The Company will be migrating from its current accounting
software  to  an  off-the-shelf  accounting  software.


                                      -14-
<PAGE>
Restructuring  Expense.  The  Company  recognized a restructuring charge for the
-----------------------
six  months  ended  March  31, 2001, related to a plan to downsize its corporate
headquarters  staff.  The  charge  in the amount of $3,900,000 was recognized as
restructuring  expense  and  consisted  primarily  of  termination  payments for
affected  employees. The Company increased the restructuring reserve by $502,000
for  the  six  months  ended March 31, 2002, as a result of additional estimated
lease termination costs associated with Company headquarters. At March 31, 2002,
a  restructuring  accrual  of  $1,520,000  remained  outstanding.

Interest  Income.  Consolidated interest income decreased $3,278,000, or 76%, to
----------------
$1,032,000  for  the six months ended March 31, 2002, compared to $4,310,000 for
the  six  months  ended March 31, 2001, as a result of lower interest rates, and
decrease  in  cash,  cash  equivalents,  and  short-term  investments,
available-for-sale.

Interest  Expense.  Consolidated  interest expense decreased $49,000, or 57%, to
-----------------
$36,000 for the six months ended March 31, 2002, compared to $85,000 for the six
months ended March 31, 2001.  This decrease is primarily due to the reduction of
interest  expense  resulting from the payment of the 8.5% promissory note to the
former  Intellicom  stockholders.

Loss  on  Disposition  of  Equity Investments.  The Company recognized a loss on
----------------------------------------------
disposition of equity investments of $701,000 for the six months ended March 31,
2002,  consisting  of  $230,000  related  to the 1,000,000 SkyNet Global Limited
common  stock  shares  and $471,000 related to the 400,000 SkyNet Global Limited
preference  stock  shares.  For the six months ended March 31, 2001, the Company
recognized  a  charge  of  $13,761,000, consisting of a $768,000 write down of a
note  receivable  and  related  interest,  and  $12,993,000  of  write-downs and
realized  losses related to various short-term and long-term equity investments.

Equity  in  Net  Losses of Investee Companies.  The Company recognized equity in
----------------------------------------------
net  losses of investee companies of $394,000 for the six months ended March 31,
2001.  The  Company did not incur any equity in net losses of investee companies
for  the six months ended March 31, 2002, as a result of the sale and write offs
of  investee  companies accounted for under the equity method for the year ended
September  30,  2001.

Miscellaneous  Expense,  Net.  Consolidated  miscellaneous  expense  decreased
----------------------------
$100,000  to  $3,000  for  the  six  months  ended  March  31, 2002, compared to
consolidated  miscellaneous  expense  of $103,000 for the six months ended March
31,  2001.  This  decrease is primarily due to the write off of costs associated
with  a  failed  business  acquisition  for the six months ended March 31, 2001,
offset by losses incurred from the disposal of property for the six months ended
March  31,  2002.

Income Taxes.  The Company made no provision for income taxes for the six months
------------
ended  March  31, 2002 and 2001, as a result of the Company's continuing losses.

Loss Attributed to Discontinued Operations.  The Company recognized a $4,819,000
-------------------------------------------
loss  attributed  to  discontinued operations for the six months ended March 31,
2002, compared to a loss of $25,440,000 for the six months ended March 31, 2001.
For  the  six  months  ended March 31, 2002, the loss attributed to discontinued
operations  consisted  of  a  $3,300,000  loss  on  disposition of Intellicom, a
$1,829,000 loss from operations of Intellicom, a $590,000 loss on disposition of
Micrographic  Technology  Corporation  ("MTC"),  as  a  result  of a preliminary
arbitration  decision  related  to  a  dispute  with  Applications Informatiques
Multimedia  and  a  dispute  related  to  the  sale of MTC to Global Information
Distribution  GmbH  ("GID"),  and a $900,000 gain on disposition of ISP Channel,
resulting  from the lower than anticipated costs of closing ISP Channel. For the
six  months ended March 31, 2001, the loss attributed to discontinued operations
consisted of a $22,712,000 loss from operations of Intellicom, a $6,008,000 gain
on  the  disposition of ISP Channel, resulting from lower than anticipated costs
of  closing  ISP  Channel,  and a $8,736,000 loss on the disposition of Aerzone,
resulting  primarily from the reduction of the anticipated sales price of Laptop
Lane  Limited.

Extraordinary  Item-Gain  on Settlement of Obligation.  The Company recognized a
------------------------------------------------------
gain  of  $1,326,000 for the six months ended March 31, 2001, resulting from the
cash  payment  made  in  lieu  of  the  Company's obligation to pay off the 8.5%
promissory  note  and  interest, and to settle business acquisition liability to
former  Intellicom  stockholders  with  common  stock.

Net  Loss.  The Company had a net loss of $9,389,000, or a net loss per share of
---------
$0.37,  for  the  six  months  ended  March  31, 2002, compared to a net loss of
$42,117,000,  or  a  net loss per share of $1.69, for the six months ended March
31,  2001.


                                      -15-
<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

Since September 1998, the Company has funded the significant negative cash flows
from its subsidiary operating activities and the associated capital expenditures
through  a  combination  of  public  and  private equity sales, convertible debt
issues  and equipment leases.  As of March 31, 2002, the Company had $69,893,000
in  cash, cash equivalents, and short-term investments compared with $75,454,000
as  of  September  30,  2001.

Net  cash  used  in  operating  activities  of continuing operations for the six
months  ended  March  31,  2002, was $2,205,000. This results from a net loss of
$4,570,000  from  continuing  operations  and  a  net  decrease  in  operating
liabilities  of  $1,528,000,  offset by several non-cash items including loss on
write  down  of  impaired  assets  of  $352,000,  loss  on disposition of equity
investments  of  $701,000,  provision  for  restructuring  costs  of  $502,000,
amortization  of  deferred  stock compensation expense of $800,000, depreciation
expense  of $126,000, and a net decrease in operating assets of $1,370,000.  Net
cash  used  in  operating  activities of discontinued operations was $3,533,000.

Net  cash  provided by investing activities of continuing operations for the six
months  ended March 31, 2002, was $20,600,000, and was provided by proceeds from
maturities and sales of short-term investments, net of purchases.  Net cash used
in  investing  activities  of  discontinued  operations  was  $2,000.

No  cash was provide by or used in financing activities for the six months ended
March  31,  2002.  Net  cash  used  in  financing  activities  of  discontinued
operations  was  $60,000.

The  Company  believes  it has sufficient cash to meet its presently anticipated
business  requirements  over  the  next  twelve  months including the funding of
operating  losses,  discontinued  operations,  working capital requirements, and
capital  investments.  The  Company  expects continued reductions in cash usages
from  its  discontinued  operating  activities for the year ending September 30,
2002.


                                      -16-
<PAGE>
                FACTORS AFFECTING THE COMPANY'S OPERATING RESULTS

The  risks  and  uncertainties  described  below  are not the only ones that the
Company  faces.  Additional  risks  and uncertainties not presently known to the
Company  or  that  the  Company  currently  deems immaterial may also impair the
Company's  business  operations.  If  any of the following risks actually occur,
the  Company's  business,  financial condition or results of operations could be
materially adversely affected.  In such case, the trading price of the Company's
common  stock  could  decline,  and you may lose all or part of your investment.

                                  COMPANY RISKS

THE  COMPANY  IS EXPLORING STRATEGIC OPTIONS AND THE DIRECTION OF THE COMPANY IS
UNCLEAR

The  Company  has  retained  Bear,  Stearns & Company to assist in exploring the
Company's  strategic  options. As previously announced, the Company has expanded
the scope of its exploration of strategic options to include transactions, which
would  focus  on  the  Company's  cash resources and status as a publicly traded
company  on  the  NASDAQ  National  Market  in  addition  to  potential partners
expecting  to  use  the  Company's  net  operating  losses in the near term. The
Company  has  received  numerous  inquiries  in  response  to  its press release
announcing  the  expansion of its scope in exploration of strategic partners. No
assurance can be given as to the results of this exploration or as to the future
direction  of  the  Company.

THE  COMPANY  HAS  A HISTORY OF LOSSES AND EXPECTS TO INCUR LOSSES IN THE FUTURE

The Company has sustained substantial losses over the last five fiscal years and
expects  to  continue  to report net losses for the foreseeable future.  For the
six  months  ended March 31, 2002, the Company had a net loss of $9,389,000.  As
of  March 31, 2002, the Company had an accumulated deficit of $399,636,000.  The
Company  expects  to  incur additional losses and experience negative cash flows
related  to  process  of  winding  down  the Intellicom, ISP Channel and Aerzone
businesses.  These  efforts  may  be  more  expensive than the Company currently
anticipates.

THE  COMPANY  MAY  NOT  GENERATE  SUFFICIENT  CASH FLOWS TO SUPPORT ITS EXPENSES

The  Company's  current  expense  levels are based on the resources necessary to
complete  the  process  of  winding down the Intellicom, ISP Channel and Aerzone
Businesses.  Depending  upon  the  costs to complete the process of winding down
Intellicom,  ISP  Channel  and  Aerzone,  the  Company is unlikely to be able to
generate  sufficient  interest  income  to  cover  expenses.

IF  THE COMPANY IS UNABLE TO SUCCESSFULLY INTEGRATE FUTURE ACQUISITIONS INTO THE
COMPANY'S  OPERATIONS, THEN THE COMPANY'S RESULTS AND FINANCIAL CONDITION MAY BE
ADVERSELY  AFFECTED

The Company may acquire other businesses.  The Company cannot predict if or when
any  prospective  acquisitions  will  occur  or the likelihood that they will be
completed  on  favorable  terms.  Acquiring  a  business  involves  many  risks,
including:

     -    Diversion  of  resources  and  management  time;
     -    Dilution  to  existing  stockholders  if  the  Company  uses  equity
          securities  to  finance  acquisitions;

     -    Incurrence  of  unforeseen  obligations  or  liabilities;
     -    Inability  of  management  to  maintain  uniform  standards, controls,
          procedures  and  policies;
     -    Difficulty  assimilating  the  acquired  operations  and  personnel;
     -    Risks of entering markets in which the Company has little or no direct
          prior  experience;  and
     -    Impairment  of  relationships with employees as a result of changes in
          management.

The  Company cannot assure that it will make any acquisitions or that it will be
able to obtain additional financing for such acquisitions, if necessary.  If any
acquisitions  are  made,  the  Company  cannot  assure  that  it will be able to
successfully  integrate  the  acquired  business into its operations or that the
acquired  business  will  perform  as  expected.

THE  COMPANY'S  EQUITY  INVESTMENTS IN OTHER COMPANIES MAY NOT YIELD ANY RETURNS

The  Company has made equity investments in Internet-related companies.  In most
instances,  these  investments  are  in  the  form of unregistered securities of
private  companies.  These  companies  typically  are  in  an  early  stage  of
development  and  may  be  expected  to incur substantial losses.  The Company's
investments  in these companies may not yield any return.  Furthermore, if these


                                      -17-
<PAGE>
companies  are not successful, the Company could incur and have incurred charges
related  to  the  write-down or write-off of these investments. For example, the
Company  wrote  down equity investments by $701,000 for the three months and six
months  ended  March 31,2002. The Company also records and continues to record a
share  of the net losses in these companies, up to the Company's cost basis. The
Company  may  make  additional  investments  in  the  future.  Losses or charges
resulting  from  these  investments  could harm the Company's operating results.

THE  COMPANY'S  STOCK  PRICE  IS  VOLATILE

The volatility of the Company's stock price may make it difficult for holders of
the  common  stock to transfer their shares at the prices they want.  The market
price  for the Company's common stock has been volatile in the past, and several
factors  could  cause the price to fluctuate substantially in the future.  These
factors  include:

     -    Announcements  of  developments  related  to  the  Company's business;
     -    Fluctuations  in  the  Company's  results  of  operations;
     -    Sales  of  substantial  amounts  of  the  Company's  securities in the
          marketplace;
     -    General  conditions  in  the  Company's  industries  or  the worldwide
          economy;
     -    An  outbreak  of  war  or  hostilities;
     -    A shortfall in earnings compared to securities analysts' expectations;
     -    Changes  in  analysts'  recommendations  or  projections;  and
     -    Changes  in  the Company's relationships with the Company's suppliers.

The  market  price  of the Company's common stock may fluctuate significantly in
the  future,  and  these  fluctuations  may  be  unrelated  to  the  Company's
performance.  General  market  price declines or market volatility in the future
could  adversely  affect  the price of the Company's common stock, and thus, the
current  market  price  may  not  be  indicative  of  future  market  prices.

PROSPECTIVE  ANTI-TAKEOVER  PROVISIONS  COULD  NEGATIVELY  IMPACT  THE COMPANY'S
STOCKHOLDERS

The Company is a Delaware corporation. Delaware General Corporation Law contains
certain provisions that may discourage, delay or make a change in control of the
Company  more  difficult  or  prevent  the  removal  of  incumbent directors. In
addition,  the Company's certificate of incorporation and bylaws contain certain
provisions  that  have  the  same  effect.  These provisions may have a negative
impact on the price of the Company's common stock and may discourage third-party
bidders  from  making  a  bid for the Company or may reduce any premiums paid to
stockholders  for  their  common  stock.

                                INTELLICOM RISKS

THE  COMPANY  MAY  FACE  UNEXPECTED  LIABILITIES IN WINDING DOWN THE BUSINESS OF
INTELLICOM

The  Company  has determined that it is in the best interests of the Company and
its  shareholders  to  wind  down the business of Intellicom.  While the Company
expects  the  process of winding down Intellicom to be substantially complete by
June  30,  2002,  there can be no assurances that it will be able to do so.  The
Company  expects  to  incur  significant costs related to terminating contracts,
reducing  the  workforce  and  recovering  and disposing of deployed assets.  In
addition,  the  Company may face litigation with respect to the wind down of its
activities.

                                ISP CHANNEL RISKS

THE  COMPANY MAY FACE UNEXPECTED LIABILITIES IN WINDING DOWN THE BUSINESS OF ISP
CHANNEL

While  the  business of ISP Channel has been substantially wound down, there can
be no assurance that all claims and issues have been resolved.  In addition, the
Company  may  face  litigation  with respect to the wind down of its activities.

                                  AERZONE RISKS

THE  COMPANY  MAY  FACE  UNEXPECTED  LIABILITIES IN WINDING DOWN THE BUSINESS OF
AERZONE

While the business of Aerzone has been substantially wound down, there can be no
assurance  that  all  claims  and  issues  have been resolved.  In addition, the
Company  may  face  litigation  with respect to the wind down of its activities.


                                      -18-
<PAGE>
ITEM  3.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

INTEREST  RATE  RISK

The  Company's  exposure  to  market  risk for changes in interest rates relates
primarily  to  the  increase  or  decrease  in the amount of interest income the
Company can earn on its investment portfolio, and on the increase or decrease in
the  amount of interest expense the Company must pay with respect to its various
outstanding  debt  instruments.  The  risk  associated with fluctuating interest
expense  is  limited, however, to the exposure related to those debt instruments
and credit facilities, which are tied to market rates.  The Company does not use
derivative  financial  instruments  or  engage  in  hedging  activities  in  its
investment  portfolio.  The  Company  ensures the safety and preservation of its
invested principal funds by limiting default risks, market risk and reinvestment
risk.  The  Company  mitigates default risk by investing in safe and high-credit
quality  securities.

The Company had short-term investments of $40,133,000 at March 31, 2002.  Except
for  investments  in  common  and  preferred stock, these short-term investments
consist  of  highly  liquid  investments with original maturities at the date of
purchase  of  between  thirteen  and  twenty-five months.  These investments are
subject  to  interest  rate risk and will fall in value if market interest rates
increase.  The Company believes a hypothetical increase in market interest rates
by  10%  from  levels  at  March  31,  2002, would cause the fair value of these
short-term  investments  to  fall by an immaterial amount.  Since the Company is
not  required  to  sell these investments before maturity, it has the ability to
avoid  realizing  losses  on  these investments due to a sudden change in market
interest  rates.  On  the  other  hand, declines in the interest rates over time
will  reduce  its  interest  income.

The  Company  had  outstanding  convertible  debt of approximately $1,444,000 at
March 31, 2002.  This instrument has a fixed interest rate of 5.0%.  Because the
interest  rate  of  this  instrument  is  fixed,  a hypothetical 10% increase in
interest  rates  will  not have a material effect on the Company.  Interest rate
increases,  however,  will  increase  interest  expense  associated  with future
borrowings  by the Company, if any.  The Company does not hedge against interest
rate  fluctuations.

CURRENCY  EXCHANGE  RISK

The  Company  has  historically  had  very  low  exposure  to changes in foreign
currency  exchange  rates,  and  as  such,  has  not  used  derivative financial
instruments  to  manage  foreign  currency  fluctuation  risk.


                                      -19-
<PAGE>
PART  II  -  OTHER  INFORMATION

ITEM  1.     LEGAL  PROCEEDINGS

On  September 26, 2001, Lucent Technologies Inc. ("Lucent") brought an action in
San Francisco Superior Court against SoftNet Systems, Inc. and subsidiaries (the
"Company"), alleging that the Company breached a contract by failing to purchase
Lucent's shares in Freewire Networks, Inc. ("Freewire")  and claiming damages of
approximately $3.5 million, which may increase over time.  On December 31, 2001,
the  San  Francisco  Superior Court issued an order to deny Lucent's application
for  writ  of  attachment,  finding  that  Lucent  had  not  shown a substantial
probability that it will prevail on its claim.  The Company continues to believe
that Lucent's claims are without merit and will contest these claims vigorously.

On  November  9, 2001, Nokia Inc. ("Nokia") commenced an action in San Francisco
Superior Court against the Company and Aerzone Corporation ("Aerzone"), alleging
breach  of  contract arising out of the Aerzone's proposed operations in certain
airports.  Nokia  seeks  approximately  $2.1  million  in  damages.  The Company
believes  that  Nokia's  claims  are  without merit and intends to contest these
claims  vigorously.

On  October  30,  2001, Global Information Distribution GmbH ("GID") commenced a
demand  for  arbitration  against  the  Company, alleging breach of contract and
warranties  relating  to the sale of Micrographic Technology Corporation ("MTC")
to GID on September 30, 1999.  GID claims approximately $2.1 million in damages.
The Company believes GID's claims are without merit and intends to contest these
claims  vigorously.

The  Company is also involved in other legal proceedings and claims, which arise
in  the  ordinary  course  of  its  continuing and discontinued businesses.  The
Company believes the results of the above noted legal proceedings, other pending
legal  proceedings and claims are not expected to have a material adverse effect
on  its  results  of  operations,  financial  condition  or  cash  flows.

ITEM  2.     CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

Not  Applicable

ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES

Not  Applicable

ITEM  4.     SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

Not  Applicable

ITEM  5.     OTHER  INFORMATION

Not  Applicable


                                      -20-
<PAGE>
ITEM  6.     EXHIBITS  AND  REPORTS  ON  FORM  8-K.

(a)   EXHIBITS

      Not Applicable

(b)   REPORTS  ON  FORM  8-K:

      Not Applicable



                                      -21-
<PAGE>
                                   SIGNATURES
                                   ----------

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the  registrant  has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized.

SOFTNET  SYSTEMS,  INC.



/s/  Edward A. Bennett
-----------------------------------------------
Edward  A.  Bennett
Acting Chairman of the Board of Directors                Date:   April 30, 2002
                                                                 --------------


/s/  George  L.  Hernandez
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George L. Hernandez
Acting Chief Operating  Officer; Vice President,
Finance and Administration; and Secretary                Date:   April 30, 2002
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